Henan aviation firm to take stake in Cargolux

Henan Civil Aviation Development and Investment Co Ltd, a State-owned company in Henan province, has purchased a 35 percent stake in Cargolux Airlines International SAS, the Dahe Daily reported.

The total value of the transaction is $231 million, including a 35 percent stake in the company and a $10 million expansion fund, according to the newspaper.

Zhengzhou Xinzheng International Airport will become Cargolux's second hub globally after the transaction is completed, and the freight carrier will open new routes from Luxembourg to Zhengzhou, the capital of Henan province, with four flights weekly.

HCADI will pay an additional $15 million as a subsidy for the new routes, it said in an agreement. The company did not respond to China's Daily's request for comment on Monday.

Cargolux, one of Europe's largest scheduled all-cargo airlines with a global network, declined to release details of the transaction, because it has not been approved yet.

"The transaction has not yet been completed," said Martine Scheuren, director of the freighter's corporate communications department.

Cargolux, based in Luxembourg, said in its financial statements that its loss widened to $35.13 million in 2012 from $18 million in 2011.

The 35 percent stake, which is now held by the Luxembourg government, was sold by Qatar Airways Co in December 2012. The government paid $117.5 million for it, the same price that Qatar Airways paid when it bought the stake from the government in 2011.

Generally speaking, it's not a good time to buy a stake in a cargo airline, as the global air cargo market has been sluggish in the recent years, analysts said. But this deal is an exception.

"Demand for international freight is huge in the province, as Foxconn Technology Group has facilities there," said Li Lei, a civil aviation analyst with China Minzu Securities Co Ltd.

Foxconn, as Taiwan-based Hon Hai Precision Industry Co Ltd is known, is a major contract maker of consumer electronics, dealing with such global giants as Apple Inc and Sony Corp.

Henan's total foreign trade rose 83 percent in 2011, when Foxconn's facilities in the province began operations, according to the local government.

"As many as 52.6 percentage points of the rise in 2011 was driven by Foxconn," the local government said in a statement.

In the first three quarters of 2013, the province's export volume increased 19.3 percent, or 11.3 percentage points higher than the nation's average growth, according to local customs figures.

Through the transaction, the State-owned civil aviation company in Henan province can obtain stable cargo capacity to Europe, Li said.

"The local government is trying to control the risk for external trade by adding more freighter capacity," he said.